1994 (4) TMI 113 - AT - Income Tax

Issues Involved:
1. Deletion of addition due to forfeiture of security deposit.
2. Disallowance of commission payment.
3. Disallowance of telephone and telex expenses.
4. Disallowance of foreign tour expenses.
5. Disallowance of depreciation on cars.
6. Addition under section 40A(8) of the IT Act.
7. Disallowance of travelling expenses under Rule 6D.
8. Interest charged under section 215 of the IT Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition Due to Forfeiture of Security Deposit:
The Department challenged the deletion of an addition of Rs. 2 lakhs on account of forfeiture of a security deposit given to Tamil Nadu Civil Supplies Corporation Ltd. The Assessing Officer disallowed the claim, considering it a penalty for breach of contract, which is not a normal business incident. The CIT(A) allowed the claim, referencing a similar Tribunal decision where such forfeiture was deemed a commercial loss. The Tribunal upheld the CIT(A)'s decision, noting that the breach occurred in the normal course of business and was not an infringement of law. The forfeiture compensated the corporation for losses due to higher purchase costs, making it a commercial loss allowable under section 28 of the IT Act.

2. Disallowance of Commission Payment:
The Department contested the commission payment of Rs. 1,50,000 to Shri O.P. Gupta, which the Assessing Officer disallowed, suspecting it was a device to avoid tax. The CIT(A) allowed Rs. 75,000 of the claim. The Tribunal reviewed the agreement detailing the work assigned to Shri O.P. Gupta, who provided valuable advice and liaison work. The Tribunal found no evidence of a colourable device and noted that the payment was reasonable considering the net profit earned. The entire commission should have been allowed, and the Tribunal deleted the remaining disallowance.

3. Disallowance of Telephone and Telex Expenses:
The Department challenged the CIT(A)'s reduction of disallowance from 1/5th to 1/8th of telephone expenses incurred by directors. The Tribunal upheld the CIT(A)'s decision, finding no excessive relief was granted.

4. Disallowance of Foreign Tour Expenses:
The Department contested the deletion of Rs. 9,778 added for a director's trip to London. The CIT(A) accepted the trip was for business purposes, supported by evidence of necessary sanctions and information provided to the Reserve Bank. The Tribunal upheld the CIT(A)'s decision, finding the disallowance unwarranted.

5. Disallowance of Depreciation on Cars:
The Department challenged the deletion of 1/5th of depreciation on cars used personally by directors. The CIT(A) held that any disallowance should be made in the directors' hands as a perquisite. The Tribunal upheld the CIT(A)'s decision, finding no serious arguments to rebut it.

6. Addition Under Section 40A(8) of the IT Act:
The Department conceded that the addition of Rs. 4,969 under section 40A(8) was not warranted. The CIT(A) deleted the addition, and the Tribunal upheld this relief.

7. Disallowance of Travelling Expenses Under Rule 6D:
The Department contested the CIT(A)'s reduction of disallowance from Rs. 10,342 to Rs. 4,324. The Tribunal disagreed with the CIT(A), stating that Rule 6D's limit applies to individual trips, not total trips. The Tribunal reversed the CIT(A)'s order and upheld the Assessing Officer's addition of Rs. 10,342.

8. Interest Charged Under Section 215 of the IT Act:
The assessee contended against the interest charged under section 215. The Tribunal upheld the charging of interest but directed the Assessing Officer to modify it in light of the relief allowed.

Conclusion:
Both the Department's and assessee's appeals were partly allowed. The Tribunal provided detailed analysis and upheld or reversed various disallowances and additions, ensuring that the decisions were based on substantial evidence and legal precedents.

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